Canada: Fines And Opportunism: The Canadian Government’s Higher Energy Costs Package
A back door to Competition Act amendments

On 6 October 2005, the Canadian government announced a package of measures to address higher energy costs caused by recent increases in gasoline prices. As part of this package, the government has proposed increasing the fines for persons convicted of price-fixing and other conduct violating the Competition Act’s criminal conspiracy provisions. The maximum potential fine would be C$25m per count rather than the current C$10m.

The government is also proposing to amend the Competition Act by giving the Competition Bureau the power to initiate general market studies into the state of competition in any sector of the economy. Currently, the Bureau may only commence an inquiry if it has reason to believe that a provision of the Competition Act has been or is likely to be contravened.

According to the minister of industry, David Emerson, the proposed amendments to the Competition Act will "increase deterrence and improve compliance with the law." The amendments will be incorporated into an existing draft bill containing other proposed amendments to the Competition Act (Bill C-19), and are expected to be reviewed by the House of Commons industry committee in the current parliamentary session.

The Canadian government’s proposals come in the wake of growing concerns about rising gasoline prices, particularly following Hurricane Katrina. The Competition Bureau initially responded to these concerns by publishing a special consumer fact sheet on gasoline prices. The Commissioner of Competition, Ms Sheridan Scott, also appeared before the House of Commons industry committee on 22 September 2005 to discuss the issue. In both cases, the message was the same: the Competition Bureau continues to monitor the situation closely but has no evidence that recent price increases are the result of anticompetitive conduct. Rather, the price increases are linked – understandably – to gasoline shortages in the United States resulting from the damage caused by Hurricane Katrina to production facilities.

Based on the 6 October announcement, it appears that the conclusion was reached that further steps were required under the Competition Act to address the gas price issue. This is so even though in five major investigations into the gasoline industry since 1990 (including one that was completed earlier this year), the Bureau has never uncovered sufficient evidence to conclude that there has been a conspiracy or joint abuse of dominance involving gasoline suppliers. Moreover, neither of the proposed amendments is limited to conduct affecting the gasoline industry; they are both general provisions and thus of much wider scope in their potential application.

Given what has been said above, one might be forgiven for harbouring the suspicion that there may be more to these proposed amendments than meets the eye.

For example, one of the already proposed amendments in Bill C-19 would allow the Competition Bureau to seek "administrative monetary penalties" against a party or parties found to have contravened the Competition Act’s abuse of dominance provisions. The proposed maximum penalty in this regard is C$10m for a first contravention. One of the criticisms levelled against this proposed amendment has been that it would impose the same penalty for abuse of dominance (a civil matter) as for conspiracies (a criminal offence). The proposal to raise the maximum fine for criminal conspiracies would now permit the Bureau to claim that it has answered this criticism –although the real issue is whether civil matters should be subject to monetary penalties at all.

Similarly, the Bureau had suggested that it should be granted a market study power in an earlier round of consultations on proposed amendments to the Competition Act. The proposal was dropped in response to the objection that the Bureau had not demonstrated that such a power was necessary. However, the Bureau never abandoned the idea and recently prepared a brief paper outlining the justifications for this broad power of inquiry.

One could plausibly conclude that the Bureau has now seized upon the opportunity afforded by the gas price increases to once again try to push this proposed amendment through, notwithstanding the fact that there continues to be no evidence of anticompetitive conduct in the gasoline supply industry specifically.

But as they say, even paranoids have enemies.

For information on the proposed government measures, please see http://news.gc.ca/cfmx/view/en/index.jsp?articleid=173269&.

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